Thursday, June 10, 2010

The Knife's edge is self sharpening

The DOW was up almost 3% today on strength of the “great” jobs report that showed a very small drop in new unemployment claims and a large drop in the number of people receiving benefits. A Labor Dept. spokesman actually had no comment when a reporter asked if these people had simply run out of benefits. (well duh, of course that is what happened)

The market loves it when people lose jobs (it means wages are being driven down) and they were really jazzed by the 40 billion US trade deficit for April. A big part of the trade deficit comes from the trans-national companies that make up the DOW dodging US taxes by trading across the border with themselves. (the bigger the deficit the bigger the tax free profits)

Some members of Congress took the dramatically larger trade deficit as further proof that China needs to pay some penalty for manipulating its currency. China has been hinting for several months that it would revalue the Yuan but there is always some excuse not to and you can hardly blame them. The neo-cons had assumed they would eat China’s lunch but the Dragon has a taste for arrogant westerners.

The economic crystal ball gazers (the ones that predicted the last crash) are starting predict the end is near. They can’t quite agree on what shape the down turn will take. Some are predicting sudden hyper-inflation and a 6000 dollar an ounce future for gold with a fifteen year recovery timeline. The other scenario is massive deflation from a credit freeze up like ‘08 with spiraling defaults that just don’t stop and a race to the bottom of prices across the board.

You can probably flip a coin about which way it will go and you may even get some of each. The unprepared and the vulnerable will suffer either way. Inflation is the preferred method for most people as it allows ridiculous amounts of debt to be mitigated without shutting down the economy but savings evaporate. Deflation favors people with cash who get a huge boost in buying power but it can bring an economy to its knees as investments evaporate from the widespread defaults.

We have walked way out on the knife’s edge. The British are in even worse trouble as their pensions are heavily invested in BP which is currently the fourth largest company in the world. (a big deal for a country that small) BP will survive in some form but probably not their stockholders. America will survive in some form but not all Americans will.


Anonymous said...

How near is the end of our economy as we know it?

prairie2 said...

How near is the end... There isn't an answer to that. It's not hard to see we are heading for the edge but will Thelma and Louise hold hands and drive over? The more people that catch on to what has been going on, the better our chances. A triggering event could bring on a crash in a short time so predicting exactly what will happen is just not possible.